Marketplace Podcast Summary: "A Housing Reality Check" Release Date: February 26, 2025

In the February 26, 2025 episode of Marketplace, host Kai Ryssdal delves into the intertwined dynamics of consumer confidence, inflation expectations, and the housing market, providing listeners with a comprehensive analysis of the current economic landscape. The episode features insightful discussions with economists, real estate experts, and industry leaders, offering a multifaceted view of the challenges and trends shaping the economy.

1. Inflation Concerns and Tariffs

Consumer Confidence and Inflation Expectations

Kai Ryssdal opens the episode by highlighting persistent concerns about inflation despite five years since the pandemic's onset. Referencing the latest Consumer Confidence Index from the Conference Board, Ryssdal notes a significant decline in the Consumer Expectations Index, which measures public sentiment regarding income, business conditions, and the job market. This decline underscores growing anxiety about future economic stability.

Ryssdal [01:07]: "Consumers also believe inflation's going to get worse in the next 12 months."

Impact of Tariffs on Inflation Psychology

Ryssdal explores the potential psychological impact of newly proposed tariffs on Mexico, Canada, Panama, Denmark, and Greenland. Economists express concern that the anticipation of higher tariffs could exacerbate inflation fears among consumers.

Alan Detmeister [02:30]: "Tariffs are coming. They're going to push up inflation a lot."

Omar Sharif, president of Inflation Insights, discusses how certain Treasury bonds are beginning to price in higher inflation, which, in theory, could lead to self-fulfilling prophecies where inflation expectations drive actual price increases. However, Sharif remains cautious, suggesting that current inflation expectations may not yet be influencing consumer behavior in this manner.

Omar Sharif [03:08]: "It doesn't appear to be happening... Whether this theory is reality is debatable."

David Miracle, Chief US Economist at Goldman Sachs, warns that inflation expectations anchored in prolonged actual inflation can become particularly dangerous, as they become entrenched in daily experiences and behaviors.

David Miracle [04:00]: "The most dangerous kinds of inflation expectations are the ones created by living with actual inflation."

Political Divide on Inflation Concerns

Ryssdal points out the partisan divide in concerns over inflation, with Democrats and Independents expressing more worry compared to Republicans.

Ryssdal [02:30]: "In surveys Republicans are less or not concerned about inflation, Democrats much more concerned. But the numbers aren't totally partisan. Independents are also worried."

Conclusion on Tariffs and Inflation

While the tariffs have yet to directly impact prices for most goods, the lingering discussions and political maneuvers surrounding them continue to affect consumer sentiment. Ryssdal emphasizes the potential long-term psychological effects and the real possibility of tariffs leading to tangible price increases.

Ryssdal [04:07]: "The tariffs haven't hit prices for most goods yet, so Merkel is less worried about psychology for now. But our brains may be soaking in tariff inflation talk for a while again."

2. Housing Market Reality Check

National and Regional Home Price Trends

Moving to the housing sector, Sabri Beneshore reports on the Case Shiller Home Price Index, which showed a national increase of 3.9% in December. While this growth rate is significant, it is markedly more manageable compared to the nearly 19% year-over-year rise three years prior.

Sam Chandin [05:49]: "Compared to that, 3.9% is more manageable."

However, even this moderation masks underlying regional disparities. Brian Luke from S&P Dow Jones highlights that the Northeast is currently experiencing the fastest home price increases, reversing earlier trends seen during the pandemic.

Brian Luke [06:40]: "The Northeast has long been expensive with consistently high demand."

Factors Influencing Housing Prices

Several factors contribute to the sustained high home prices:

• New Construction: Increased building activity has helped balance supply and demand, slowing price growth in some Sunbelt markets.

  Sam Chandin [06:00]: "There's been a lot of new construction... that has helped back balance supply and demand and slow price growth."

• Climate Change and Insurance Costs: Rising concerns about climate change are influencing homebuyers, especially regarding increasing insurance premiums in vulnerable areas like Florida.

  Sam Chandin [06:20]: "Home buyers... may be thinking also about the impact of climate change... about rising insurance costs."

• Regulatory and Land Constraints: In the Northeast, limited developable land and stringent regulations hinder new construction, perpetuating high prices.

  Ali Wolf [06:58]: "There's not much new inventory, there's not much developable land."

Renovation Market and Home Improvement Trends

The housing reality check extends to the renovation sector. Home Depot’s recent quarterly earnings revealed a 1% sales growth, signaling a potential normalization following the pandemic-induced boom.

Sam Chandin [07:47]: "A lot of money moved out of stocks, so equity indexes generally down... we're going to do a little homes segment here."

Retail consultant Greg Portel interprets this growth as normalization rather than a spike, suggesting that consumers now have a clearer sense of certainty in their home improvement plans.

Greg Portel [08:24]: "It is important not to confuse normalization with all of a sudden an uptick."

Nick Spector, owner of Allaire Homes in Houston, observes an increase in smaller-scale renovations as homeowners prioritize maintaining their existing properties over large-scale remodels, influenced by high prices and mortgage rates slowing nationwide home sales.

Nick Spector [09:11]: "We're seeing a lot of people... interested in moving forward with projects..."

Michael Baker from DA Davids echoes this sentiment, predicting that the slow housing market will likely keep growth in home renovations subdued.

Michael Baker [09:34]: "A slow housing market will likely keep growth in home renovations low."

Conclusion on the Housing Market

Overall, the housing market appears resilient, with regional variations and structural factors like construction costs and labor influencing ongoing trends. While prices continue to rise, especially in the Northeast, efforts to increase supply and mitigate environmental concerns are shaping the future landscape.

Ryssdal [09:53]: "It doesn't seem to be getting worse and in fact bouncing along the bottom and maybe even getting a little bit better."

3. The Blurb Economy: Challenges in Publishing

In a thought-provoking segment, Constance Grady from Vox joins Sabri Beneshore to discuss the controversial blurb economy—the practice of soliciting testimonials from established authors to promote new books.

The Mechanics and Controversy of Blurbs

Blurbs serve as endorsements on book covers, typically from well-known authors, aiming to attract readers. However, the process has become increasingly burdensome for successful authors who receive numerous requests daily.

Constance Grady [12:43]: "Blurbs are those little testimonials that you see on a book's cover... making it have a big splashy entree when it comes out."

Many authors express frustration over the time-consuming nature of providing genuine endorsements, often having to decline requests or offer superficial praise without thoroughly reading the books.

Constance Grady [14:27]: "A lot of authors will admit, I don't read everything I blurb. I maybe read, you know, the first and last chapter and kind of hope for the best from there."

Impact on Authors and Publishers

The overwhelming demand for blurbs creates an emotional and logistical challenge for authors, who prefer to focus their efforts on writing rather than promotional activities. Publishers, on the other hand, grapple with allocating limited marketing resources, often reserving substantial support for anticipated bestsellers while neglecting other titles.

Constance Grady [15:21]: "Blurbs are one of those things that if you're an author, it's one of those things that you can kind of use like it's a magic shield... but I will live without it."

Reader Engagement with Blurbs

Constance Grady emphasizes that many readers, including herself, find blurbs more useful for professional evaluation rather than personal decision-making. She questions the actual impact of blurbs on book sales, suggesting that their effectiveness might be overstated.

Constance Grady [13:04]: "I look at the back cover of a book, I don't read the blurbs... it has no effect on whether or not I buy the book."

Future of the Blurb Economy

While some advocate for eliminating blurbs to reduce the burden on authors and streamline the publishing process, others believe they remain a valuable marketing tool. Grady posits that as long as blurbs can provide an advantage in competitive markets, authors will continue to seek them despite the challenges.

Constance Grady [15:43]: "Blurbs can be kind of an equalizer... I think a lot of authors are going to want to keep trying to get blurbs and hope that they will make a difference."

4. Energy Tariffs and Their Impact on New England

Backed by ongoing discussions about tariffs, the episode shifts focus to the energy sector, particularly the relationship between New England utilities and Hydro Quebec.

Tariffs on Canadian Energy

President Trump's administration has hinted at imposing tariffs on various energy imports, including a 10% tax on energy from Canada. This move threatens to increase energy costs for regions like New England and New York, which rely heavily on Canadian gas, oil, and electricity.

Ryssdal [27:54]: "A 10% tariff on Canadian energy will mean a direct rate impact for our customers."

Hydro Quebec's Role as an Energy Buffer

Hydro Quebec, leveraging its extensive hydroelectric resources, serves as a crucial energy supplier and buffer for New England. Mark Montalvo from Daymark Energy Advisors explains that Hydro Quebec's capacity acts as a "big battery," storing excess energy from renewable sources like solar and wind to stabilize the grid.

Pierre Olivier Pinot [21:40]: "Quebec can basically store power behind its dams for whenever New England needs it."

Infrastructure Developments

New transmission lines connecting Hydro Quebec to major grids in New England and New York are nearing completion, enhancing the region's ability to import and manage energy more efficiently. These connections not only facilitate energy imports but also allow for energy exports during surplus periods.

Serge Abergel [20:49]: "Each of them will bring enough energy to supply a million homes... They can send power north."

Challenges and Mitigation Efforts

Neil Lunderville of Vermont Gas Systems discusses the direct impact of potential tariffs on consumers, emphasizing that increased costs would be passed on to customers. While efforts to mitigate these effects are underway, uncertainty remains due to unclear tariff policies.

Neil Lunderville [22:21]: "A 10% tariff on Canadian energy will mean a direct rate impact for our customers."

Conclusion on Energy Tariffs

The looming tariffs present a significant risk to energy affordability and stability in New England. The region's dependence on Canadian energy underscores the importance of strategic infrastructure and policies to safeguard against potential economic disruptions.

Ryssdal [26:30]: "Tariffs... the president signed an order today directing the Commerce Department to investigate whether copper tariffs might be warranted."

5. My Economy: Entrepreneurial Challenges in Mushroom Farming

In a personal and entrepreneurial spotlight, Howard Burke, president and co-founder of Ellijay Mushrooms in Ellijay, Georgia, shares his journey in the mushroom farming industry.

Starting the Business

Burke recounts his collegiate beginnings, where his interest in mushrooms grew from healthy eating habits to cultivating mushroom logs. This passion evolved into a full-fledged business as he partnered with others to scale operations.

Howard Burke [23:55]: "It wasn't until college that I really took it seriously in mushrooms... we created Ellijay Mushrooms."

Navigating Business Challenges

Early challenges included pricing complexities and unexpected costs such as delivery and labor fees, which initially led to financial losses. However, strategic adjustments and careful financial planning eventually led to profitability.

Howard Burke [25:00]: "This year we just hit profitability. We just got it over the line."

Scaling and Funding Needs

As the business grows, Burke faces the need to expand by building additional greenhouses. Securing funding through grants, such as the Value Add Producer grant, is crucial. Without these funds, the company may need to seek alternative financing, introducing further risks.

Howard Burke [25:40]: "If we don't have those USDA funds and loans, we're just going to move forward with it and know that we're going to make it happen."

Commitment to the Community

Located in a rural area, Burke emphasizes the importance of providing stable, healthy wages to local employees, fostering a supportive community environment.

Howard Burke [26:10]: "We wanted to make sure that the employees that lived here, we could give them a living, healthy wage that they could stay here with their families."

Conclusion on Entrepreneurial Resilience

Burke's narrative highlights the resilience and adaptability required in the agricultural sector, illustrating how small businesses navigate financial uncertainties and scale sustainably while contributing to their local economies.

6. Market Movements and Economic Indicators

Throughout the episode, Sabri Beneshore provides updates on stock market performances and economic indicators:

• Dow Industrials: Up 159 points (+0.43%)
• NASDAQ: Down 260 points (-1.3%)
• S&P 500: Down 28 points (-0.5%)
• Notable Movements: Zoom plunges 8.5% following slower-than-expected revenue growth; Home Depot surges 2.8%; Lowe’s gains approximately 2.2%; Joann’s plans to close all 800 stores due to inability to find a buyer.

Bond Markets: Bond prices are up, leading to a decrease in yields on the 10-year Treasury note by 4.3 points.

7. Final Remarks and Upcoming Developments

In closing, Kai Ryssdal touches upon ongoing tariff investigations and the potential introduction of copper tariffs under Section 232 of the Trade Expansion Act of 1962. The episode underscores the significance of understanding these economic policies and their broader implications on national security and market dynamics.

Ryssdal [27:54]: "Section 232 of the Trade Expansion Act of 1962... the president signed an order today directing the Commerce Department to investigate whether copper tariffs might be warranted."

Conclusion

This episode of Marketplace offers a nuanced examination of current economic challenges, particularly focusing on inflation expectations influenced by tariff discussions and the multifaceted nature of the housing market. Through expert insights and real-world examples, listeners gain a deeper understanding of how these elements interact and shape the broader economic environment. The inclusion of personal entrepreneurial stories, like Howard Burke's, adds a relatable dimension to the complex economic narratives presented.

For more insights and detailed analyses, consider tuning into future episodes of Marketplace.